“Tyranny of Alabama’s tax system”

From the Rally for Constitutional Reform, Tuscaloosa, Alabama, April 7, 2000

By Barbara Larson
Executive Director, Leadership Alabama

   "Imagine with me a tax system that would be designed to create jobs and a positive climate for business. A system that responds to inflation and the business cycle, and to structural economic changes over time. Imagine paying taxes in good faith, knowing that those having more assets, property or income than you do will pay more, and those with less will pay a fair share, but less than they do now. We can have that and more, but it will take the resolve of the citizens to make it work and the political leadership that responds to the strength of that resolve." That is a quote from an article by Dr. William Raabe, professor of taxation at Samford University School of Business, and one that is especially appropriate for those of us gathered here today.

   Now most of us here can imagine just such a tax system. In fact, that is precisely why we made our trip to Tuscaloosa... to start the process of revising our antiquated constitution and to open the door for a fair tax system that will meet the needs of all of our people. We believe that constitutional reform and tax reform are necessary first steps to a successful future for our state, and that it can actually happen — we believe that a determined group of people can overcome 99 years of history and set Alabama on a progressive course to a brighter future.

   We came here today to be energized by people who believe that change is possible. We will leave here today with a commitment to recruit an army of believers... believers in a bright tomorrow for Alabama. But in order to talk about the future, we need to understand where we are today. We know that Alabama has an extremely regressive system of taxation. For real progress we must broaden the tax base, we must make taxes fair and we must gain some flexibility to address our most pressing needs. Let us take a moment to review some of the problems with our present tax system and what we can do about them.

   We hear a lot about our cumbersome, outdated constitution. I believe that our unfair and inadequate tax system is anchored in the 1901 constitution. That constitution was written to benefit some people and to burden others, and in doing so it has restricted the tax base. That tax system has endured because of political muscle of those who benefit and the challenges associated with changing the constitution. There are over 400 pages of tax amendments, and special exemptions cost Alabama over a billion dollars, according the Legislative Fiscal Office.

   It is extremely difficult to change anything to do with our taxes, whether it’s property tax, income tax or simply freeing money from the constraints of earmarking. It is difficult because our archaic constitution requires that we pass a statewide amendment every time we want to make a change — and it takes an extraordinary majority in the legislature and a vote of the people to adopt an amendment. Originally the peoples’ vote offered yet another opportunity to block changes in taxes because of voter restrictions aimed primarily at African Americans. Race-based voter restrictions are behind us now, but the presumed impotence of everyday people to affect political change remains locked in our collective political psyche.

   But let’s look at these three areas — income tax, property tax, and earmarking — individually:

   Income tax. Alabama is one of the poorest states in the nation, yet we tax families making as little as $4,600 per year. On federal returns, families start paying at over $25,000 for a family of four. Low-wage families in Alabama pay the 3rd highest income tax rate in the U.S. At the same time we give income tax breaks to our wealthiest citizens through deductions for federal income taxes paid. If we connect that tax break to federal taxes, wouldn’t it make sense to connect the lower tax threshold to federal taxes as well? Alabama Arise has a well thought-out proposal for income tax fairness that is worth our consideration and support.

   Property tax. Alabama has the lowest property tax in the nation at a rate that is only 1/3 of the national average. Through a long, calculated process ... orchestrated by special interests, such terms as "lid bills" and "current use" have become constitutionally entrenched in our tax system. Year after year our elected officials genuflect to these tools of special interests, the ancient tax taboos of the powerful. And so our property taxes remain at such low levels that we simply cannot provide adequate service for our people.

   Low taxes used to be a strong inducement for industry to settle in Alabama. Now companies looking for a home are also interested in quality of life issues, good schools and adequate infrastructure. We are falling behind the competition on that score. In a recent forum on tax reform, Donald Ratajczak, Director of the Economic Forecasting Center at Georgia State University, reported that Alabama ranks dead last among the fifty states in tax revenue per capita. Our tax base, which is the wealth of our state, the capacity of our people and businesses to pay taxes, ranks 44th among the states. This is not surprising because we know that Alabama is a poor state. We can compare our wealth with our sister states in the southeast. Our tax bases are similar. But when we consider our tax rate, perhaps a more important measurement because it reflects the effort we are willing to make, we fall short. If we matched Mississippi in taxes paid per capita, we would have 400 million more dollars. Matching Georgia in per capita taxes would give us an additional 2 billion dollars to fund our schools, guard our prisons, repair our bridges and protect our children.

   Earmarking the tax revenues that we do realize are so restricted that it is impossible to make wise spending decisions in times of prosperity or when the coffers are nearly empty. Nearly 90% of our tax revenue is earmarked. The national average for earmarked funds is 28%, and we are at 90%. When our legislature debates the general fund, the debate concerns only 10% of the fund. No wonder Governing Magazine ranked us at the bottom in financial management. The state can’t spend money where it is needed the most in the short term, and we can’t benefit from well-planned spending in the long term. And right now there is a bill before the legislature that could earmark up to 61% of the growth in the Special Education Trust Fund for permanent teachers pay raises every year. Our teachers deserve competitive salaries, but legislature should not be tied to specific pay increases regardless of what funds are actually available or what unanticipated and urgent needs may appear.

   A basic, populist distrust of our elected officials plays right into the hands of those who want to protect the earmarking giant, but responsible people can elect responsible representatives who can make responsible decisions based on current conditions. What a revelation!

   Now the people of Alabama may not want to raise taxes on themselves-but they deserve the opportunity to decide. Alabamians should be able to decide where the money is coming from and where it is spent. They should not be restricted on all fronts by the unfair, outdated tax structure that is cemented in our antiquated constitution. Tax breaks should lighten the load for the poor instead of going solely to the interest groups with the most clout in Montgomery. We excuse so many from paying their fair share that we have to raise taxes on the rest of us to make up the difference.

   The sales tax is everybody’s favorite revenue device. Sales tax can be levied locally, without a constitutional amendment or a vote of the people. It also is the tax that falls hardest on the poor. Sales tax is seven times harder on the poor than on the wealthy. A much larger slice of the income of the poor goes to food, clothing and other necessities. And there are no breaks on food or over the counter medicine for the poor or elderly. Sales tax is the most regressive tax, and yet in Alabama we raise four times the revenue through sales tax than through property tax.

   Not only is it unfair to rely so heavily on a regressive sales tax, it is foolhardy in light of the snowballing e-commerce. Internet merchandising, which at this time returns no tax revenue, looms especially large to a state that depends heavily on sales tax revenue. On-line sales topped $9 billion last year and by some estimates could be as high as $350 billion by 2002. We must restructure our tax system to meet the needs of today’s service based economy and then move on to plan for the future - e-commerce and all.

   But you know all this. You have come today because you are concerned about our future. We are all hopeful that finally we might shed the heavy mantle of an oppressive constitution and ready ourselves for the millennium ahead. I believe each of us here is committed to constitution reform and is ready to set and stay that course. But let me quote Dr. Raabe on tax reform again. "Is the problem too big to solve, or is the message from the public too quiet, that we demand a better tax system and that we will do what it takes to put one in place?" We had better be ready to forge ahead, loudly if necessary, and take any number of people with us.

   I made a speech last year where I shared one of my favorite "I wish I had said that" phrases which came from Ray Mabus, former Governor of Mississippi when he spoke to a Leadership Alabama class about 9 or 10 years ago. That day Governor Mabus said that Mississippi and Alabama share a common ailment — we are victims of the tyranny of low expectations. I was really taken with that phrase, but whenever I talked about suffering from the Tyranny of Low Expectations, I was always referring to those people who cling to the "good old days." You know, those people who say "if it was good enough for me, it’s good enough for my kids."

   And then I had an epiphany! The "good old days" people are not the only ones who are bearing that yoke of tyranny. In fact, our antiquated constitution has provided the yoke, and now all of us are suffering from the strain of pulling it along. That is all except the special interests who molded the specialized tax system, those who benefit from the extensive earmarking and those who protect their own power by resisting home rule.

   All of us here today, everyday citizens like you and me, are going to have to overcome this tyranny of low expectations and we are going to have to bring a lot of people along with us. Those of us who have the resources, not just financial resources, but emotional and intellectual resources that enable us to see a better future for Alabama, are going to have to work toward that vision.

   Tax reform is not a new conversation. There have been two serious attempts at tax reform within the last ten years. One was led by former Chief Justice Bo Torbert (the Alabama Commission on Tax and Fiscal Policy Reform of 1990); and another led by Tom Carruthers, attorney at Bradley Arant in Birmingham (the Tax Reform Task Force of 1991). These efforts were led by good people with good intentions. In both cases there was a lot of hard work involved, but nothing really came of them. Since then we have had Republican and Democrats in the Governor’s chair. We have had Republicans and Democrats in the Lt. Governor’s chair. And we have not seen any real attempt at tax reform. All we have seen is some finely crafted Band-Aids that hold things together temporarily.

   Most elected officials — those who we expect to take the lead in addressing such compelling problems — don’t even mention tax reform unless they are putting the hex on the idea. It is going to take real resolve by the people in this tent and the people of Alabama for us to lead our elected leaders to a new tomorrow. We are going to have to gather a large crowd and make enough commotion that our elected officials will think its a parade and race to get in front.

   And we can do that. We must translate our belief in a better tomorrow and our commitment to Alabama’s future into a challenge of the status quo. We must raise our expectations for our elected leadership and we must speak out loudly when we are disappointed. We must encourage our elected leadership to be problem solvers, not partisan adversaries. We must demand that they respond to the voice of the people and not just to the deep pockets of the special interests. All of us here must be judged not only on what is said today, but on what is done tomorrow.

   This constitution rally is a great start and we will leave here with a commitment to tomorrow. We must leave our complacency behind and be activists for our state’s future. And we must raise our expectations for Alabama today and Alabama tomorrow.

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Alabama Citizens for Constitutional Reform Foundation, Inc.
P.O. Box 34
Montgomery, Alabama 36101-0034

E-mail: accr@constitutionalreform.org
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